Analysts at TD securities noted that China’s January FX reserves fell and were continuing the pace of large decline (of $108bn) in December. Key Quotes: China’s FX reserves fell $99.5bn in January, a substantial further 3% decline but better than we and the market expected. The lack of acceleration in FX reserves utilization should at least be taken as a positive by the market, despite the brisk pace being maintained, with further macro and FX flows data later in the month providing the broader context. We continue to see USDCNY moving to 6.95 by year-end, with only a clear communication of an indefinite pause by the Fed or sustained acceleration in Chinese growth taking pressure off of capital flows driving this needed adjustment. China’s January FX reserves fell by a substantial $99.5bn or 3%, continuing the pace of large decline (of $108bn) in December. This was less than what we had expected, as there has been really no indication that would make us expect that capital outflow pressure from China would have eased off in January. The external environment brought little in the way of good news, and there were numerous signs of stress significant enough to imply increased capital flight pressure for China. Asia ex-Japan fell by 7.7% on the MSCI measure, while Asian currencies continued to decline against the USD. Furthermore, the Shanghai composite lost 23% and the renminbi fell on a spot basis 1.3% against the USD. All this came in the first week before China stabilized the currency by managing the daily CNY fixing stable to slightly higher through the remainder month. These facts had led us to believe that we should have seen an increased pace of reserves burn on the assumption that capital outflow pressure would (at the least) not have eased during the month, and thus the official effort to keep CNY flat to appreciating would have taken a significantly increased incremental reserves utilization effort. It is in this context that the lower (than January) reserves burn is surprising" For more information, read our latest forex news.